Detox

As the U.S. treasury secretary mentioned last week, “corrections are normal, I’m not worried about the stock market”. US equity indices are under pressure, due to high valuations, the uncertainty surrounding the effect of tariffs and inflation. But the reality is that healthy markets do exhibit corrections of 10% with enough frequency to call them normal. In the chart below, you can see the anual performance of the S&P500 on the blue bars, and the maximum intrayear drawdown, in red. The average drawdown since 1980 is 14.1%. The anxiety the market is exhibiting is probably not due to this correction. It’s the fact that we might be close to an economic recession due to high levels of debt that weight on the budget and aggressive trade policies aimed at collecting money from the rest of the world. The U.S. equity market was priced to perfection and needs to adjust to a new reality. The “detox” period in Bessent words.

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